LkSG

The LkSG, short for Lieferkettengesetz, is the German Supply Chain Act enacted in 2021. It compels companies operating in Germany to prevent human rights violations and environmental damage within their upstream supply chains. The law became enforceable on 1 January 2023 and applies to businesses with 1,000 or more employees, a threshold lowered to 500 for financial institutions and retail companies from 2024.

Key responsibilities under LkSG include the identification and assessment of risks related to child labour, forced labour, human trafficking, unlawful environmental practices, and violations of basic rights. Companies must develop and implement risk mitigation plans, establish monitoring and reporting mechanisms, and provide training to staff involved in supply chain management. Failure to comply can result in fines of up to 3 million euros or 2 % of annual turnover, whichever is higher.

The Act also mandates annually published reports on due‑diligence procedures and progress made. These reports are publicly accessible, enabling stakeholders to evaluate corporate accountability. Moreover, the law fosters collaboration between companies, suppliers, and civil society organizations to strengthen responsible sourcing practices.

LkSG aligns with international initiatives such as the UN Guiding Principles on Business and Human Rights and the OECD Due Diligence Guidance. It has prompted many multinational firms to reassess procurement policies, invest in supply‑chain transparency tools, and engage in supplier audits. Critics argue that it places a significant administrative burden on smaller enterprises, while supporters emphasize its role in promoting sustainable and ethical business operations.

Overall, the LkSG represents a landmark step towards embedding human‑rights and environmental due diligence into corporate governance, reshaping procurement practices across German‑based supply chains worldwide.

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